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Market Timing and Capital Structures - Evidence from the Nordic Market

Tonell, Jonas and Månsson, Elise (2010)
Department of Business Administration
Abstract
This paper investigates the applicability of the equity Market Timing Theory of capital structures on large firms in the Nordic market. Tested by using a panel data regression on firms listed on the OMX large cap in Sweden, Denmark and Finland. Contrarian to what the theory claims, no relationship is found between net equity issuance and market-to-book values. Capital structures that are present here are hence not a cumulative outcome of previous attempts to time the equity market. The capital structures are better explained by applying the pecking order and tradeoff theory when interpreting the specifics of the region. The history, ownership structures, size and maturity of the firms in the sample together with aspects of investor... (More)
This paper investigates the applicability of the equity Market Timing Theory of capital structures on large firms in the Nordic market. Tested by using a panel data regression on firms listed on the OMX large cap in Sweden, Denmark and Finland. Contrarian to what the theory claims, no relationship is found between net equity issuance and market-to-book values. Capital structures that are present here are hence not a cumulative outcome of previous attempts to time the equity market. The capital structures are better explained by applying the pecking order and tradeoff theory when interpreting the specifics of the region. The history, ownership structures, size and maturity of the firms in the sample together with aspects of investor relations are likely explanations to the fact that Market Timing is out powered in impact and importance. The implications of these findings concerns investors, owners and top management at the Nordic market since the clear results reduces the information asymmetry, foremost in the decreased signaling effect issuance of equity possesses. (Less)
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author
Tonell, Jonas and Månsson, Elise
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Equity Market Timing, Capital Structures, D/E, Debt, Equity, Baker and Wurgler, Nordic Market, Management of enterprises, Företagsledning, management
language
Swedish
id
1625042
date added to LUP
2010-06-07 00:00:00
date last changed
2012-04-02 18:19:39
@misc{1625042,
  abstract     = {This paper investigates the applicability of the equity Market Timing Theory of capital structures on large firms in the Nordic market. Tested by using a panel data regression on firms listed on the OMX large cap in Sweden, Denmark and Finland. Contrarian to what the theory claims, no relationship is found between net equity issuance and market-to-book values. Capital structures that are present here are hence not a cumulative outcome of previous attempts to time the equity market. The capital structures are better explained by applying the pecking order and tradeoff theory when interpreting the specifics of the region. The history, ownership structures, size and maturity of the firms in the sample together with aspects of investor relations are likely explanations to the fact that Market Timing is out powered in impact and importance. The implications of these findings concerns investors, owners and top management at the Nordic market since the clear results reduces the information asymmetry, foremost in the decreased signaling effect issuance of equity possesses.},
  author       = {Tonell, Jonas and Månsson, Elise},
  keyword      = {Equity Market Timing,Capital Structures,D/E,Debt,Equity,Baker and Wurgler,Nordic Market,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Market Timing and Capital Structures - Evidence from the Nordic Market},
  year         = {2010},
}